Thailand cuts growth outlook as dismal output casts doubts on recovery

BANGKOK (REUTERS) - Thailand cut its growth outlook this year and said policy would stay supportive as poor manufacturing output suggested South-east Asia's second-largest economy may struggle to emerge from recession.

The fifth straight month of contraction in manufacturing output, worst than the market had expected, has fanned debate on when the Thai economy can pull out of a downturn. Thailand is grappling with a current account deficit and capital outflow pressures ahead of a tapering in US monetary stimulus.

Thailand's finance ministry on Friday cut the outlook on growth for the year to 3.7 per cent from 4.5 per cent projected in June due to weak exports and slower domestic demand.

"The MPC (monetary policy committee) is expected to keep the policy rate on hold until next year to support economic growth," the ministry's fiscal policy office chief, Mr Somchai Sajjapong, told a news conference. "But next year, there is a chance that the rate will go higher if inflationary pressure picks up."

Exports were estimated to increase just 1.8 per cent this year, which will result in a trade surplus of US$4.9 billion (S$6.1 billion) and a current account surplus of US$1.3 billion, he said.

On Aug 21, the MPC left the benchmark rate at 2.5 per cent for a second straight meeting, saying that was appropriate for the economy to gain momentum. It next reviews policy on Oct 16, and most economists expect no change.

Weakness in exports and slowing domestic demand pulled Thailand into a mild recession in the second quarter, as its economy shrank on a quarterly basis in each of the first two quarters.